Customer comfort: Does the automotive agency model offer an easier way to buy?

Nowadays, we’re all accustomed to buying things online, even if they come with a hefty price tag. This change in consumer habits was undoubtedly supported by the Covid-19 pandemic, which forced us onto the internet to make essential (and not so essential) purchases.

So why should buying a car be any different?

Thanks to our growing familiarity with online shopping, car manufacturers have been given an opportunity to disrupt the traditional sales market and fundamentally change the way in which we buy vehicles.

The result is the agency model, in which customers buy directly from the car manufacturer. Instead of haggling for a price, the customer buys their chosen vehicle at a price set by the car brand. This makes it easy to purchase online.

The dealer then fulfils more of a supporting role, providing information, test drives and showrooms to potential customers.

But if more automotive brands begin to adopt this new sales structure, will it be good or bad for customers? Let’s take a closer look.

Pro: Suits a preference for online purchases

It’s certainly arguable that customers’ needs when it comes to buying a car have shifted, particularly after the pandemic.

According to research, a decade ago a new car buyer would visit a dealership 7 times on average when making a purchase. After the pandemic, this dropped to an average of just 1.5 visits. This suggests that customers have a declining need for dealerships and prefer to touch base with them only when they are in the final stages of the sales process.

A small, but potentially still significant, survey carried out by What Car? also provides some indication that customers are beginning to prefer a more ‘hands-off’ approach when it comes to buying cars. Its survey of 1,221 in-market car buyers revealed that 55.4% of them would prefer to interact with a dealership under an agency model.

Con: A culture shift is still needed

However, it is debatable whether the UK market is ready for a full switch to an agency model due to franchising being such an integral part of our car-buying culture.

“In the UK, we have a very sophisticated buying market,” says Sam. “It is very different to that in Europe or in newer markets, such as Australia, which is where agency models have been tested out. UK buyers are tuned into a certain way of buying their cars. They’re looking for savings because it’s ingrained in our culture.”

By offering one fixed price, car manufacturers could run the risk of misjudging clients’ needs and losing a sale.

Indeed, Mercedes-Benz’s sales figures suggest that this has been the case so far. After launching their agency model on 1 January 2023, their resulting sales were down by 20% compared with the previous year (according to Car Dealer Magazine). Their market share also took a tumble, dipping by a significant 31.5% between December 2022 to January 2023.

Pro: No more haggling

While some love the thrill of bargaining for a deal, it seems that many of us would rather avoid the interaction altogether.

A piece of research carried out by Accenture revealed that haggling is far from being customers’ favourite part of the sales process, with more than two-thirds of those questioned reporting that they find it cumbersome to research and bargain for discounts.

With a set price for everyone, there is no need to negotiate. This creates a more straightforward, faster and less stressful purchase process for customers.

Con: Lost pricing confidence

Of course, with no bargaining power, it is very possible that there could be a drop in market competitiveness. This could impact customer choices in a negative way by leading to higher prices.

Competition laws in the UK mean that fixed pricing is illegal under a franchise model, something that car brands have been pulled up on before. But under an agency structure, where the sale contract is made directly between the consumer and the manufacturer, setting a fixed price is possible.

This means that customers won’t be able to hunt around for a deal for a certain car brand, because there simply won’t be one available. This could make buying a car an even more expensive proposition going forward.

Sam also warns that if agency does get adopted by all car manufacturers, the freedom of deals and discounts will be impossible to reintroduce: “Once everyone goes down the agency route, we won’t go back. That competitiveness will be gone and there won’t be any research to do or negotiation.”

The inflexibility of the agency model, in which a universal set price is established, also means that manufacturers may have to drop prices across the board to stimulate sales. This can negatively affect the confidence a customer has in the price being offered. “You can lose customer confidence with price reductions,” says Sam. “What if you buy a car, and then a month later there is a big reduction in price?”

Pro: Centralised customer service

Depending on where you are in the country, and which dealer you contact, you can experience very different levels of customer service.

However, under this new model, customer support will be offered by the brand. This will make it more uniform and direct. By getting up-to-date information straight from the manufacturer, customers won’t have to wait for answers.

Remote provision also means that customer service can be offered via more channels. For instance, online (via a website, email chat bots or social media) and phone. It is also more likely that this provision can be extended beyond normal working hours for greater accessibility.

Loss of the personal touch

However, centralisation may not be all that it’s cracked up to be.

It could be frustrating for some customers to have to reach out for support via phone, email or online, rather than being able to speak to someone in person. This frustration could be amplified if the car manufacturer fails to provide good customer service, or moves into an agency model before enough provision has been set up. This can easily damage customer loyalty.

Lack of person-to-person relationship building can damage customer loyalty in other ways too. “A car is an emotional purchase. You develop an affinity with that brand,” states Sam. However, with car manufacturers fixated on price and dealers unable to cut a deal, this statement could lose its truth. Indeed, brand loyalty is already not what it used to be. “The aspiration to always own one brand is gone,” says Sam.

Loyal customers will also not be able to be rewarded under this new scheme, which could again weaken their commitment to a brand. “Someone who has been buying your cars for 20 years will pay the same price as a brand-new customer. So why should they stay with you?” argues Sam.

The Affinity solution

It remains to be seen whether customers embrace the agency model, or whether they vote with their feet.

But no matter which model is decided upon, our Affinity solution can provide your car business, dealership or brand with flexibility and customer satisfaction.

As an online solution, we offer customers the chance to buy at a time and place that suits them. But it also means that you can continue to reward loyalty or select specific customers for discounts – all without affecting the rest of your retail offering.

And when it comes to customer service, we can help there too. Affinity is a fully managed solution, which means that we will provide email and phone support to your customers.

To find out more about Affinity, and how it can fit into your sales model, get in touch with us today to book a free demo.